1. The Service Level Agreement between the Treasury and the Central Bank
PEMPAL Treasury Community of Practice
Chişinău, October 2017
Mike Williams

2. The Context In Moscow emphasised the need for
Mechanisms to ensure consistency at high level between monetary policy, fiscal and debt management
Operational coordination and cooperation between the CB and those responsible for the management of debt and cash
Importance of structuring at different levels, including the role of Memorandums of Understanding (MoUs) and Service Level Agreement (SLAs) to bring clarity, and avoid misunderstanding
Different country experiences
Most had MoUs or SLAs covering at least some activities between the CB and MoF/Treasury
But widespread concern that the relationship tended to be dominated by the CB
Specific request for guidance/template for a SLA

3. Today’s Agenda
Focus on the SLA between Treasury/MoF and CB that covers the “treasury services” supplied by the institutions to each other
Services that are relevant to:
Government cash management
Government debt management
Monetary policy operations
Taking account of the:
The policy context
The MoU/SLA boundary
The range of services involved
The structure of a SLA
Note: there is no “one suits all” option or single template
The aim is to provide material on which countries – and in particular the Treasury function within the MoF – could draw in preparing a SLA, taking account of their own needs and circumstances

4. The Policy Framework 1. Facilitating Macroeconomic Policy Coherence
4. Services
Primarily focus on 3 & 4 – but speak briefly about 1 & 2
2. Managing Government’s Balance Sheet
3. Financial Market Operations, implementation and coordination
The focus is on 4.Services; but there is some interaction with 3.Operations

5. Policy Coordination: Mechanisms & Structures
Legislation, Decrees, Regulations where needed
Terms of reference of committees and working groups
Memorandums of Understanding or Protocols on operations
Structures – at different levels
Minister/Governor
Formal committee structures, e.g.
Public Debt Committee for high level policy coherence
Cash Coordination Committee for daily or weekly operations
Technical working groups
Day to day operational interaction

6. The MoU covering Operations
No clear dividing line between an MoU and SLA
Some countries put high level policy and operational issues in the same document (e.g. Iceland)
The policy may be in an MoU, but the details of how it is operated in the SLA: e.g.
Interest on the TSA
Information and data exchanges
Use of overdraft
There may be one or more MoU(s)
and one or more SLA(s)

7. The MoU: Some Examples
The joint program for the development of the money market
Including policies and operations for bill issuance and the respective roles of CBbills and Tbills
How the CB reports its and the market’s views about the debt and cash management program and operations
Might be covered by the PDC
The respective roles in handling any unusual market operations
Special monetary operations, inc QE
Special repo operations
Choice of primary dealers or auction counterparties
Shared or independent
The payment of interest on government balances at the CB
Has to be agreed at the policy level, even if details in SLA
Information exchanges – respective responsibilities
Mechanism of communication and issues covered (e.g. the prospective auction schedule, cash flow forecasts, banking information)
Determinants of e.g. the timing of respective auctions
Also associated market announcements, inc prior warning
[Where the treasury is able to borrow from the CB], understandings of the limits (sums, maturities, ability to roll over etc.) of such borrowing

8. The Role of the SLA What the SLA does Why it does it The SLA:
Identifies the services that will be supplied
Specifies the requirements, how they will be provided and to what standard
The basis of remuneration
How any performance shortfalls or conflicts will be handled.
The analogy is the private sector contract for services supplied
But a fully-fledged contract between two parts of central government will not be appropriate
They have shared objectives and a reservoir of mutual trust [we hope]
The purpose of the SLA:
to manage expectations on both sides;
to avoid there being any misunderstanding about respective roles and responsibilities
to help allocate resources (via charges)
in a way that is robust to future personnel changes
The SLA should identify who does what when something goes wrong
There may be one or more than one SLA
It may provide for schedules that are changed more frequently

9. The Services Covered The CB as the Government’s Banker
Assume the TSA is located at the CB
May be other Treasury accounts at CB
Requirements also depend on:
CB’s role in relation to payments: centralised or decentralised; use of EFT, sophistication of GIFMIS etc
Whether there are regional branch networks of MoF and CB
CB may supply other debt and cash management services
Fiscal agent
Settlement agent
More substantial for countries actively managing cash or using the repo market
Registrar and/or paying agent for government bonds
Treasury may also supply services
Cash flow forecasts
Other data
[Special monetary operations – unusual, highly specific; not covered below]

10. Specific Services: Banking
The structure of bank accounts, and the interaction between them.
Includes, linking, sweeping or mirroring., and notional sub-accounts.
How balances of sub-accounts are aggregated to calculate the balance in the TSA
Other specified Treasury accounts outside the TSA (e.g. donor accounts)
Agreed procedures for opening and closing bank accounts
Handling of foreign currency flows
Bank statements, timing and detail; respective reconciliation responsibilities.
Payments processed by the CB: timing and mode of data transfer from Treasury.
Deadlines for transaction handling
The rate of interest to be paid on balances in the TSA, including its calculation
Arrangements for borrowing from the central bank, where that is allowed
Degree of automaticity, limits, maturities, roll-over capabilities, interest to be charged
Additional provisions may be needed where the Treasury is a participant in the payments systems
Default will be the rules applying to all participants

11. Specific Services: Fiscal Agent
Arrangements for any prior discussion of borrowing plans or the security chosen at the forthcoming auction
Notice of related decisions (some of this may be in the MoU)
Handling of auctions:
Publication of auction details
Collection of bids
Handling of any cash deposits
Processing and internal presentation of results for decision making
Publication of results
Associated deadlines for these activities
Respective responsibilities for primary dealer contracts
Nature of any secondary market transactions by the CB on behalf of the Treasury, and associated instructions and reporting
Market activity reports

12. Specific Services: Settlement and Registration
Settlement & Related Services
Registration Services
Interaction with settlement system:
Account structure, respective responsibilities of CB and Treasury
Transaction & stock reporting
Treasury access to settlement data, inc for reconciliation
Deadlines for handling transactions to meet settlement cut-offs
Confirmation of transactions settlement
Handling of fails by the counterparty
Access to intra-day liquidity
Treasury access to the collateral held by CB for special repo operations
Repo collateral handling
Where the Treasury is actively managing cash and using the repo market
Maintenance of the register of all bond holders
Ensuring that all primary and secondary market transactions are captured accurately
Reporting bond ownership in agreed format and frequency
Payment of coupons and redemptions by due date
Handling of unclaimed payments
Procedures (timings, information flow) for handling liability management operations
May be a separate protocol

13. Specific Services: Other
Business Continuity
Treasury Services to the CB
Assurances about business continuity
Arrangements for reporting a problem and for recovery; and what happens following a business continuity event
Compensation in the event of an IT failure
See French example
[Arrangements for CB to take over from Treasury/DMO if it is unable to carry out its normal business]
Cash flow forecasts
Detail, format and frequency
Other relevant data under MoF control
E.g on budget performance, balance of payments, etc
Timely information on budget plans, auction timetable, unusual debt or cash operations, and so on
French example
In France the CB has assured DMO/Treasury of “uninterrupted availability of account keeping applications” and “implementation of an emergency back-up procedure in the event of an incident that affects the telecommunications link”
The MoU provides for “compensation for investment opportunities that are missed because the [CB] is unable to honour its contractual commitments.”

14. The Headings of the SLA? Background, Purpose and Scope Authorities
Valid instructions, signatories, record keeping etc
Obligations
Services supplied, business continuity, indicators
Liability
Force majeure, compensation
Disputes Procedure
Forward Planning
Willingness to deliver new requirements
Monitoring and Liaison
Regular meetings
Charging and billing arrangements
Control assurances
Confidentiality
Review, Revision and Termination
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15. Two Contentious Issues
Control Assurances
How does the Treasury obtain assurance that the CB’s internal control system is adequate
Private sector increasingly requires service providers to present external audit report on their internal systems
Treasury should ask for an analogous report from CB
Charges
Treasury should pay for services (CB should pay interest on TSA balances) – to give the right economic signals
Usually more efficient to levy per transaction (possibly plus a lump sum), not by value
Fees paid could be linked to performance targets

16. Next Steps Circulated paper gives much more detail
Grateful for feedback
Some questions
Is this material helpful; is it what was requested?
Does it make sense in the light of country experiences; is it practical?
What is missing; what would be most help as the next step in this area?
Thank You!